Lecture Week 2

1. Lecture Week 2 Assessing The Strategic Position. The External Situation Part 1

2. Learning Outcomes • To be able to describe the forces in the macro-environment of an organisation using PESTEL and a range of other frameworks • Understand key drivers for globalisation and frameworks for National Competitive Advantage • Be able to develop Scenarios and explain their implications

3. Exhibit 2.1 Layers of the business environment The macro-environment Industry (or sector) Competitors The Organisation

4. The Macro-Environment • Diversity-Many different influences • Complexity- Interconnected influences • Speed of change • Particularly ICT PESTEL Key drivers Scenarios

5. Macroenvironment – PESTEL (1) Exhibit 2.2

6. The PESTEL Framework

7. Macroenvironment – PESTEL (2) • Political • Government stability • Taxation policy • Foreign trade regulations • Social welfare policies • Economic • Business cycles • GNP trends • Interest rates • Money supply • Inflation • Unemployment • Disposable income Exhibit 2.2

8. Macroenvironment – PESTEL (3) • Sociocultural • Population demographics • Income distribution • Social mobility • Lifestyle changes • Attitudes to work and leisure • Consumerism • Levels of education • Technological • Government spending on research • Government and industry focus on technological effort • New discoveries /developments • Speed of technology transfer • Rates of obsolescence Exhibit 2.2

9. Macroenvironment – PESTEL (4) • Environmental • Environmental protection laws • Waste disposal • Energy consumption • Legal • Competition law • Employment law • Health and safety • Product safety • Note a PESTEL is not just a list of influences • We need to understand key drivers for change which have differential impacts on industries, markets and organisations • Focus is on the future impact of factors (e.g. scenario planning • The combined effect of some factors likely to be most important Exhibit 2.2

10. What Are Key Drivers for Change? Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy.

11. Drivers of Globalisation See Exploring Corporate Strategy 2011 ed, Page 268. 2008 edition: Page 297 Source: Based on G. Yip, Total Global Strategy ll, FT/Prentice Hall, 2003, chapter 2. Exhibit 2.3

12. Porter’s Diamond The Determinants of National Advantage See Exploring Corporate Strategy, 2011 ed. p270 or 2008.p301 Source: M. Porter, Competitive Advantage of Nations, Macmillan, 1990. Exhibit 2.4

13. Determinants of National Advantage • Some nations are more competitive than others • Fostering domestic competition • Some industries within nations are more competitive than others • Clusters of organisations from the same industry/sector (Porter 1990,1998)

14. SCENARIO PLANNING • Detailed and plausible views of futuredevelopment of environment, based on groupings of key environmental influences and drivers of change about which there is a high level of uncertainty • Different views of possible futures • Long term view of strategy • See Handbook/Blackboard site for the stages in developing scenarios and the illustration “Building Scenarios” in the core text “Exploring Corporate Strategy” – “Scenarios in the Bio Sciences” page 58

15. Scenario Planning • As strategists we should recognise that an industry analysis does not necessarily end with a PESTEL/Five Forces etc. • We often have to develop future possible scenarios especially when dealing with high levels of uncertainty • The first step is to identify the key factors which act upon the industry – focusing in particular upon those that will have a high impact and are uncertain in nature

16. Scenario Planing cont. • Step One: Identify between 5 to 8 key trends – From PESTEL/FIVE Forces etc • Step Two: Identify and list forces likely to have an high impact on the industries future development. (list as many as you can think of) • Step 3: Split these into two categories: Which of these are • Certain • Uncertain • Step Four: Identify different possible futures by each of the factors with the highest likely impact and the greatest uncertainty (try to come up with 3 to 5) • Step Five: For each of the above in step 4 identify in columns • Big Positive change (i) No Change(ii) Big negative change(iii) • 1……… • 2……… • Step Six: Finallydevelop the scenarios based on the three possible future states for a • 1. Benign Change • 2. Moderate Change • 3. Hostile Change • See example in core text exploring corporate strategy and Blackboard week 2

17. Industries and Sectors Competitive forces in the industry: • Determine attractiveness of industry • Affect the way individual companies compete • Influence decisions on product/market strategy Industry – a group of firms producing the same principal product, e.g. mobile phones Sector – a group of organisations providing the same kinds of services, e.g. healthcare

18. Changing Boundaries of Industry • Convergence • Previously separate industries begin to overlap in activities, technologies, products and customers • Supply-led, e.g. • bundling and unbundling of sectors in public services • externally driven by government regulation • externally driven by e-commerce trends • Demand-led, e.g. • Substitution of one product by another • Customers want bundling of complementary products • Creates new market segments

19. Competitiveness • Business • Gaining advantage over competitors • Competitive advantage • Public sector • Demonstrable excellence in service delivery Assess attractiveness of different industries/sectors Identify sources of competition in an industry/sector Porter’s Five Forces – Next Week

20. Environment Part 1– Key Points • PESTEL identifies key drivers of change • Scenario planning involves building upon a PESTEL analysis to help develop strategies by predicting future uncertainties on important drivers in terms of their environmental forces and levels of importance • Environmental analysis identifies opportunities and threats • Scenario Building Portfolio Assessment No2